FFELP and FDLPDischarge/Forgiveness Programs

Laura KowalskiAssistant Team Manager, Policy and Regulatory Affairs, TG

Michelle Anderson, Senior Policy Advisor, Policy and Regulatory Affairs, TG

Agenda

• Review each type of FFELP and FDLP discharge and forgiveness

• Provide general eligibility requirements

• Identify situations that a financial aid administrator (FAA) may encounter

Discharge vs. forgiveness

• Discharge – Due to circumstances beyond the borrower’s control

• Forgiveness – Due to circumstances within the borrower’s control

Discharge Program Types

Types of discharge

• Bankruptcy

• Closed school

• Death

• False certification

• Total and permanent disability

• Unpaid refund

Loan discharge

Definition:

The release of a borrower’s obligation to repay his or her loan, either in whole, or in part

Bankruptcy discharge

For certain borrowers who have filed a petition for relief under the U.S. Bankruptcy Code

Types of bankruptcy

• Chapter 7: Asset─liquidation

• Chapter 7: No-asset─liquidation; no assets available

• Chapter 11: Business

• Chapter 12: Family farmer

• Chapter 13: Wage earner plan reorganization; repayment of some debts

Undue hardship

Bruner Standard:

• Can debtor maintain minimal standard of living?

• Is debtor’s state of affairs likely to persist?

• Has debtor made good faith effort to repay loan(s)?

FAA situation

Can the student receive a second or subsequent disbursement if borrower has filed bankruptcy?

•Notify lender, guarantor, or FDLP servicer as applicable to

cancel subsequent disbursements

•Lender may require a new master promissory note (MPN)

•Certify the new loan

FAA situation

Can the FAA certify a new loan if a borrower has a previous bankruptcy in his/her history?

• Loan certification

– May not refuse to certify loan if all other eligibility criteria are met

– May not certify loan for lower amount due solely to borrower’s bankruptcy filing

Closed school discharge

Provides relief for a borrower unable to complete his or her program of study due to the closing of a school

Eligibility requirements

Borrower (or student) must have met one of following conditions:

•Been enrolled on day school closed

•Withdrawn from school not more than 90 days before school closed

•Been on approved leave of absence on day school closed

Eligibility requirements

Borrower (or student) must not complete the same or comparable program:

•Through a teach-out program at another school

•By transferring academic credits or hours earned at closed school

•By benefiting from any other means from training provided by closed school

Discharge denials

• Borrower disputing quality of education

• Individual program closed, not entire school

• School did not provide job placement

FAA situation

Is a borrower eligible for a new loan after a priorclosed school discharge?

• Yes, the FAA can certify a new loan

• Any discharged loans are deducted from borrower’s aggregate, if applicable

Death discharge

For a borrower (of a Stafford, PLUS, or Consolidation loan) who has died or for a PLUS borrower whose dependent student (for whom the loan was obtained) has died

Dependents

If dependent student for whom parent obtained a PLUS loan dies:

•Parent’s loan is discharged

•Portion of Consolidation loan attributable to parent PLUS loan is discharged

Spousal consolidation

• If only one borrower dies, the underlying loans of the deceased are discharged

• Surviving spouse responsible for remaining balance

FAA situation

What should the FAA do if he or she learns of aborrower’s death?

• Cancel pending disbursements

• Notify lender and guarantor, or FDLP servicer as applicable

FAA situation

What is acceptable documentation?

• Original or certified copy of death certificate, or

• Effective November 1, 2007, accurate and complete photocopy of original or certified copy

• NOTE: Faxed or electronic copy of the death certificate is not acceptable

False certification discharge – school

Refers to a situation in which a school falsely certified the eligibility of a borrower to receive a federal education loan

Three types of false certification by school

• Unauthorized signature

• Ability to benefit (ATB)

• Disqualifying status

False certification – crime of identity theft

An individual may obtain a false certification loan discharge on a loan(s) disbursed on or after January 1, 1986, if the individual’s eligibility to receive the loan was falsely certified as a result of a crime of identity theft.

Eligibility requirements

• Individual:– Did not sign the promissory note, or that any other means

of identification used to obtain the loan were used without the authorization of the individual

– Did not knowingly receive or benefit from the proceeds of the loan that had been made without the individual’s authorization

– Provides copy of a local, state, or federal court verdict or judgment that determines that the individual who is named as the borrower or endorser of the loan was the victim of a crime of identity theft by a perpetrator named in the verdict or judgment

FAA situation

What should the FAA do if student complains about a possible identity theft situation?

•Cancel pending disbursements

•Notify lender and guarantor, or FDLP servicer as applicable

Total and permanent disability discharge

For a borrower who is totally and permanently disabled (TPD)

Eligibility requirements (non-veterans)

Current definition:

The condition of an individual who is unable towork and earn money due to an injury or illnessthat is expected to continue indefinitely or resultin death

Eligibility requirements (non-veterans)

New definition, effective July 1, 2010:

The condition of an individual who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that:

– Can be expected to result in death;– Has lasted for a continuous period of not less than

60 months; or– Can be expected to last for a continuous period

of not less than 60 months.

3-year monitoring period

Within 3 years of the date of TPD, borrower cannot receive:

• A new FFELP or Direct loan (other than a Consolidation loan)

• A new TEACH grant

• Earnings from employment that exceed poverty line amount for a family of two in borrower’s state

Consolidation loans

• Borrower must be certified TPD for all underlying loans to qualify for discharge of Consolidation loan

• Borrower must provide lender disbursement dates of underlying loans, if requested

Spousal consolidation

• If only one borrower disabled, his or her underlying loans may be discharged

• Both borrowers responsible for remaining balance

Total and permanent disability — veterans

Definition:

The U.S. Department of Veterans Affairs has determined the borrower to be unemployable due to a service-connected condition

FAA situation

How will the FAA know that a borrower has previously received a TPD discharge?

•ISR shows comment code 115 for TPD•School cannot certify a new loan until documentation from borrower is received

FAA situation

What documentation is required for a borrower to obtain a new loan after a prior TPD discharge?

• Submit physician statement certifying that borrower may engage in substantial gainful activity

• Sign statement acknowledging that new loan cannot be discharged due to same condition

Unpaid refund discharge

Discharge intended for borrower who was due a refund but school failed to issue one

Eligibility requirements

• Borrower must not have attended the school, or must have withdrawn or been terminated

• Borrower must not have received refund to which he or she was entitled

FAA situation

Is a borrower eligible for an unpaid refund if the school he or she attended is closed?

•If school records are available and indicate borrower is eligible

•If school records are not available, burden of proof is on borrower

Forgiveness Program Types

Types of forgiveness

• Teacher loan forgiveness• Public service loan forgiveness• Income-contingent repayment (ICR)• Income-Based Repayment (IBR)

Loan forgiveness

Definition:

The release of a borrower’s obligation to repay his or her loan, either in whole or in part, due to fulfillment of some type of service requirement

Teacher loan forgiveness

• To encourage and retain persons in the teaching profession

• Maximum forgiveness up to $5,000 or $17,500 (for certain math, science, and special education teachers)

General eligibility requirements

For all borrowers:

• “New borrower” on/after October 1, 1998

• Full-time teacher for five complete, consecutive years at a Title I school, a school operated by the Bureau of Indian Education (BIE), or operated on an Indian reservation by an Indian tribal group under contract with the BIE, or educational service agency (ESA)

• One of the years of qualifying service must be after 1997-98

• Teaching at an ESA may be counted only if the consecutive five-year period includes qualifying service at an eligible ESA performed after the 2007-2008 academic year.

Eligibility requirements

If qualifying teaching service began before October 30, 2004:

Up to $5,000 forgiveness if Chief Administrative Officer (CAO) certifies that the borrower:

•Met general eligibility requirements

•Taught in a subject matter relevant to degree, or demonstrated knowledge and teaching skills in reading, writing, math, and other areas of the elementary curriculum

Eligibility requirements

If qualifying teaching service began after October 30, 2004:

Up to $5,000 forgiveness if CAO certifies that borrower:

•Met general eligibility requirements

•Met the definition of “highly qualified”

Eligibility requirements

If qualifying teaching service began after October 30, 2004*:

Up to $17,500 forgiveness if CAO certifies that borrower:

• Met general eligibility requirements

• Taught secondary math or science, or elementary or secondary special education

• Met the definition of “highly qualified”

Definition of “teacher”

Someone who provides:

• Direct classroom teaching, or

• Classroom-type teaching in non-classroom setting

• Note: Special education teachers are included in definition of “teacher” for purpose of this program

Definition of “educational service agency”

A regional public multi-service agency authorized by state statute to develop, manage, and provide services or programs to local educational agencies. An otherwise eligible borrower may qualify for forgiveness if the borrower has performed qualifying teaching service at one or more locations that are operated by an educational service agency, but are not a school, and that have been determined by the Department, in consultation with the state, to be eligible locations for this purpose.

Break in teaching service

• A return to postsecondary education related to teaching service

• A condition covered under the Family Medical Leave Act (FMLA)

• A call or order to active duty for more than 30 days as member of Armed Forces reserve

• Waiver for interrupted teaching service due to Katrina

FAA situation

Is there a Web site that lists eligible Title I schools?

• Yes. List includes eligible title I schools and eligible ESAs

https://www.tcli.ed.gov/CBSWebApp/tcli/TCLIPubSchoolSearch.jsp

FAA situation

Can a borrower receive TLF on his or her combined FFELP and FDLP Loans?

•Yes, but only up to the maximum forgiveness amount borrower is eligible

Public service loan forgiveness

Provides for forgiveness of the balance (principal and interest) of FDLP loans for borrowers employed in certain public service jobs

Public service loan forgiveness

To be eligible for forgiveness:

• Borrower has to have made 120 payments on the loan after October 1, 2007

• Loan must not be in default• Borrower must be employed in public service job

– During the period in which each of the 120 payments were made

– At the time forgiveness is applied

FAA situation

Can a FFELP borrower consolidate his or her loans into the FDLP in order to qualify under this forgiveness program?

•Yes, on or after July 1, 2008; however, the borrower will have to make 120 payments on that Consolidation loan before qualifying for forgiveness

Public Service Loan Forgiveness (PSLF)

• For more information about PSLF access: http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp

• Check out several PSLF Q&As at the same link

Income-contingent repayment (ICR)

• Repayment plan only available to FDLP loan borrowers• Must qualify annually based on borrower’s:

– Loan debt

– Income

– Family size

• Provides forgiveness of remaining balance after 25 years

Income-Based Repayment (IBR)

• New repayment plan available to FFELP and FDLP loan borrowers beginning July 1, 2009

• Must have a “partial financial hardship” (PFH) and qualify annually based on borrower’s:– Loan debt

– Income

– Family size

• Provides forgiveness of remaining balance after 25 years (300 payments)

Resources

• www2.mapping-your-future.org/paying/loan Forgiveness.htm

• www.finaid.org/loans/forgiveness.phtml

• http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp

• Common Manual – Sections 13.8 and 13.9

• Ask TGTM -- www.tgslc.org

Questions?

This presentation is available for download at

www.tgslc.org/tgconference.